Healthcare fraud continues to be a growing problem in the United States and abroad. According to the Centers for Medicare and Medicaid Services (CMS), fraud schemes range from those perpetrated by individuals acting alone to broad-based activities by institutions or groups of individuals, sometimes employing sophisticated telemarketing and other promotional techniques to lure consumers into serving as the unwitting tools in the schemes. Seldom do perpetrators target only one insurer or either the public or private sector exclusively. Rather, most are found to be simultaneously defrauding public sector victims such as Medicare and private sector victims simultaneously.
CMS reports that annual healthcare expenditures in the United States totaled over $2 trillion dollars in 2006 , and at that time were expected to increase 6.5% a year. Though the amount lost to healthcare fraud and abuse cannot be precisely quantified, the general consensus is that a significant percentage is paid to fraudulent or abusive claims. Many private insurers estimate the proportion of healthcare dollars lost to fraud to be in the range of 3-5%. It is widely accepted that losses due to fraud and abuse are an enormous drain on both the public and private healthcare systems.
Medical providers use a standardized system of numerical codes for patient services that are required by government programs such as Medicare and Medicaid. This way insurers and the government do not have to decipher what services were provided from thousands of different types of coding or billing systems. There are several codes that are applicable for medical procedures. The misuse of these standardized codes to obtain more money than the provider would otherwise be entitled to is commonly termed “upcoding”. Each medical procedure code corresponds to a particular service and will eventually result in reimbursement to the physician or other provider based upon the code entered. Providers or the organization they work for have financial incentives to increase the bill by exaggerating or even falsely representing what medical conditions were present and what services were provided.
An example of upcoding would be when a patient receives a two-minute visit for the treatment of an upper respiratory condition, but is charged for a longer visit that would indicate a more serious condition. The provider may bill for a one hour visit, even though the provider saw the patient for a very short time. In some cases, the diagnosis may be altered to falsely diagnose the patient suffering from a more severe condition. If the provider bills for a procedure that indicate a higher level of service than the patient received, fraud has occurred.
One of the main problems in detecting upcoding is that there are a large number of procedure codes (>10,000). Deciding which codes have the potential to be upcoded, and which codes they can upcoded towards, has been a manually intensive process in the past.